Los Angeles -Attorney General Edmund G. Brown Jr. today reached a settlement with UCLA Professor Gerald D. Buckberg, M.D., and five officers of the nonprofit L.B. Research and Education Foundation (“L.B.”) that forces them to stop using the charity as a “personal bank account” to finance their business ventures.

“Professor Buckberg and his associates used the charity as a personal bank account to finance their research and business ventures,” Brown said. “This self-dealing is a clear breach of their fiduciary duties and under today’s settlement, Buckberg must return $140,000 in diverted funds to the charity.”

Buckberg founded L.B. in 1997 and has served as the charity’s director, chief executive officer, and manager. The purpose of the charity, as stated in the articles of incorporation, is to “provide help to persons with physical and psychological problems, provide funding for research activities related to physical or psychological problems and to provide funding for scholarships and other programs that improve education.”

Under California law, “no part of a charitable organization’s income or assets may inure to the benefit of any director, officer, member or private person.” However, an investigation launched by Brown’s office in 2007 revealed that Buckberg and L.B.’s officers used the charity’s assets to finance their own medical research, the research activities of companies in which they had a financial interest and the development of medical devices that they sold.

On September 9, 2009, Brown sued the charity and its officers to stop these illegal practices. Today’s settlement agreement forces Buckberg to return $140,000 in diverted funds to L.B., and:

- Prohibits L.B. from using grants or other funding to directly or indirectly support research by L.B.’s officers and directors or any entity in which they have a financial interest;
– Requires L.B. to report future grant awards to Brown’s office;
– Prohibits Buckberg from serving as an officer of L.B.;
– Requires the transfer of control of L.B.’s corporate checkbook and bank accounts from Buckberg to the Chief Financial Officer;
– Requires L.B. to hire experts to educate officers and board members about charitable trust law and their fiduciary duties, to develop a conflict of interest policy and to develop a grant-making review process to ensure that future grants comply with state and federal law;
– Mandates that new board members be elected by a majority of the board and that two independent board members be added; and
– Requires L.B. to keep financial books and records that clearly set forth expenditures.

Under the settlement, Brown’s office will also be reimbursed for its legal fees.

L.B. has been primarily funded by Buckberg, although it has received some funding from several other individuals and businesses.